WealthManagement Magazine

Cox to SIA: No Regulatory Rollback

When William Donaldson stepped down as SEC chairman, the perception was that the reform movement had also left the building. The White House replaced him with California Congressman Christopher Cox, known for his anti-regulatory rhetoric. But in his first speech to the Securities Industry Association today, Cox delivered a strong message: “The guns of the SEC are not about to go silent.” Cox said pirates may no longer sail the waters off Boca Raton, Fla.—where the SIA annual meeting is being held—but “today’s pirates sail the seas of high finance.”

When William Donaldson stepped down as SEC chairman, the perception was that the reform movement had also left the building. The White House replaced him with California Congressman Christopher Cox, known for his anti-regulatory rhetoric. But in his first speech to the Securities Industry Association today, Cox delivered a strong message: “The guns of the SEC are not about to go silent.” Cox said pirates may no longer sail the waters off Boca Raton, Fla.—where the SIA annual meeting is being held—but “today’s pirates sail the seas of high finance.”

In the same speech, however, he did acknowledge the concerns that SIA members had over increased scrutiny and aggressive rulemaking under Donaldson. Cox said the SEC staff “is listening” to complaints from industry participants about unintended consequences of new securities rules. Any new securities rules would have to be workable and do more good than harm, he assured the audience. “We don’t want to choke on our own medicine,” he said, citing Roman emperor Claudius’ death at the hands of his own doctor.

That said, Cox looked into the audience of 750 and proceeded to quash any hopes that he would play Mr. Softie with the Street. He has no plans to reverse any rules of the Donaldson regime, such as requiring greater independence on mutual fund boards. His arrival, he said, is not an excuse “to re-open and contest” SEC rules. Rules forcing some hedge funds to register were not open to negotiations because he was new, he said.

Before Cox came to the podium, however, Morgan Stanley’s James Gorman, the new chairman of the SIA, again registered the industry’s concerns. “The intensity of the regulatory environment over the past several years has been unprecedented in modern memory,” he said. But, he reminded the crowd, that the reforms arose from serious problems: “Let’s be frank. We brought this on ourselves. The market excesses, the accounting scandals, questionable behavior across a wide swath of industries all have demanded—and received—a stern regulatory response. No regulator in this environment could risk being seen as less vigilant, less aggressive or less committed to punishing the guilty.”

Still, Gorman wants regulatory relief. The first step, he says, would be melding NYSE and NASD oversight. “The regulatory system is like any other system devised by human beings. When it is most stressed, running at or beyond capacity, this is the time when its flaws and weaknesses become most visible and apparent. So now we have a unique opportunity to see those deficiencies in clear relief, and address them. To change some things that are in fact counterproductive. A good starting point is regulatory duplication.”

Last winter, the SEC issued a conceptual paper on reconstituting SROs. In his speech, Cox did not shed any new light on where he stands on this issue of creating one, hybrid SRO comprised of the NYSE and NASD regulatory functions. SIA officials have been actively lobbying for the new structure during this three-day annual meeting.

NASD Chairman Robert Glauber, another speaker, said that he would tell the House Financial Services Subcommittee on Capital Markets next week that he supports a joint venture between the NYSE and NASD to handle rule writing, examination and enforcement of the 180 firms that belong to both organizations. “This structure is very much in-line with the hybrid SRO proposal that the SIA put forward a few years ago,” he said. “Firms would be regulated according to one rule book instead of two.” In this way, he added, “We can bring about measurable reductions in costs and regulatory burdens.”

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